Repair Your Credit for Lower Interest Rates
Minimize credit card APR to maximize your savings.
Good credit use requires strategy. The more strategic you are about how you treat credit and how you use your credit cards, the more effective you can be and easier it will be to manage your money successfully.
These days, when most people apply for a credit card, it’s all about what you can get – cash back, airline miles, bonus rewards. But as nice as all of these extras are, they really shouldn’t be your main focus in choosing a credit card.
Most credit purchases end up costing more with interest added. Unless you’re paying off every credit card debt you incur within the first month it’s made, then interest is getting add to your debts. That means your credit purchases cost more money.
Keeping that in mind, it’s in your best interest to have to lower interest rates possible on your credit cards. That way, your purchases cost less over time.
If you make a $500 purchase on a credit card with 13% APR on a standard 2% payment schedule, how much interest would you pay before the debt is paid off?
a) Around $50
b) Just under $125
c) Just over $150
d) More than $200
On a 2% payment schedule (2 percent of your balance), you will make the minimum $15 payments for 3.5 years and pay $123.72 before the debt is paid.
b) Just under $125
What to look for during pre-application credit repair
Any time you apply for a new line of credit, it’s a good idea to review your credit reports and correct any mistakes you may find through the credit repair process. That includes when you want to get a new credit card. Getting the lowest interest rate possible on every new account you open will save money over time.
Errors like duplicate accounts, incorrect account statuses and mistaken missed payments drive down your credit score. Even a few mistakes that shave off a few points each can have a big impact on your borrowing potential. And that impact translates into high interest rates on your new credit card.
If you haven’t reviewed your credit reports in the past twelve months, then you are entitled to a free copy of your report from each of the three bureaus. You can download it at annualcreditreport.com. Otherwise, you will need to pay for your reports or opt for a credit monitoring.
If you find mistakes, make a decision if you want to try and correct the issues on your own or if you’d be better off using a professional credit restoration service. Note that it can take a few months to get everything on your credit report corrected. So if you need a new credit card urgently, going through credit repair could delay your plans. However, it’s worth it to get lower interest.
As you review your reports, also note how many credit inquiries appear on your report. You specifically want to look at the “hard” inquiries. This is where a creditor or lender checks your credit because you apply for a loan or a credit card. If you have too many applications in a six month period, then it drives down your score.
Make sure you don’t have a lot of hard inquiries already. This will help maximize your score. Ideally, you should only apply for the one credit card you want. Applying for multiple cards at the same time will negatively impact your score, too.
Repairing your credit to negotiate for APR reduction
Just because you already have your credit cards, it doesn’t mean you’re stuck with the high interest rates that they have assigned. People who have really strong credit scores can often negotiate with their creditors to lower the interest rates on their existing accounts.
Essentially, if you are a good customer – you’ve had your account for a few years, you’ve always paid your bills on time and you’ve never had any problems – and you have a good credit score, then the creditor may be willing to reduce the interest rate on an open account to keep you using that card.
Fact: The average fixed APR for credit cards is 15.6 percent, although fixed APR is set at 13.02 percent (Q2 2014).
So you can strategically use credit repair to maximize your credit score as much as possible before you call your creditors to negotiate for an interest rate reduction. Review your credit reports, make sure they’re error-free, then call your creditors to negotiate. They’ll pull your reports and check your credit score before they make any offer, so your scores will be maximized when that happens.
It’s important to note that this check will count as a “hard” inquiry, so don’t call for rate reductions on all your accounts at once, or do a round of negotiations if you’ll be applying for a new line of credit or loan in the near future. But if you aren’t getting any new loans or credit cards, then it might be in your best interest to talk to your creditors and see what they’re willing to offer. The only thing you have to lose is added interest charges!